Friday, August 13, 2010

Robbing Peter to Pay paul

I may not be the sharpest knife in the drawer and perhaps someone can explain a few things to me, or at least I hope so.

As I understand it, t-bills or treasury bills are monetary obligations issued by our government which any of us can buy if we have the money. They are basically a function of debt, we give the government our money and we get a t-bill that will give us some sort of return at the end of some period of time. Am I ok on this so far?

So, the government earlier this week announced it was buying up some of the t-bills in order to ‘stimulate’ the economy. Their theory is that if the government buys up some of the debt obligations, then the persons holding the debt obligations will have more cash to invest in other items which then helps the economy and the government as well.

What is a puzzle to me is that if the government is broke, and in debt, the only way for it to pay off debt is to borrow more money (i.e. –printing more) to pay off some debt. Kind of a robbing Peter to pay Paul concept. So borrowing money to pay off debt doesn’t make a lot of sense to me. Of course, since we are dealing with the government, I might be asking for too much.

This is sort of like General Motors making the announcement that they were paying off their government owed debt…five years ahead of schedule. What is confusing about this little deal is they used funds from another government line of credit to do this: Translated – they are using bailout funds from the feds to pay off their loans.

This looks to me like a giant shell game. If I go to the bank and secure one loan to pay off another loan, did I really accomplish anything to be proud of? I don’t think so. However I must make it clear to all reading this that I am not an educated economics scholar, so my logic may be somewhat confused. You would hope those at the highest levels of government could explain my concerns, but maybe not.

My last point of this effort concerns the announcement this week that the 29 billion dollar ‘jobs stimulus’ plan was going to be paid for by a reduction in the food stamp budget in the year 2014. Now if anyone out there thinks that the food stamp budget coming in the future is going to be reduced, I have some ocean lots for sale in Arizona that you might be interested in hearing about.

If this is the latest version of the government shell game, then I’ll go you one better. Why not hold a press conference and announce that the budget deficit for the coming year will be eliminated. That should stir up the money markets and produce some positive news to Wall Street. Of course, you’d have to explain how you were going to do this and how would it be paid for.

Then you just announce that you are eliminating the entire military budget for the fiscal years 2020 and 2021.

See how simple this is? I should run for office. I can solve these problems and just think I did it without being a Rhodes Scholar.